State's Fiscal Chiefs Talk Tough

In a joint legislative session, they lay out a grim scenario if parties can't agree on fixes for $28-billion budget gap.

December 09, 2008|Jordan Rau and Patrick McGreevy | Rau and McGreevy are Times staff writers.

SACRAMENTO — In the 1970s, hardened felons tried to deter juvenile delinquents from lives of crime through "Scared Straight" presentations in which they portrayed prison life in all its brutal unpleasantness.

On Monday, California's top fiscal officers attempted to deliver a similar jolt to state legislators who have yet to address a $28-billion projected budget gap.

In a rare joint session of the Assembly and state Senate, the treasurer and controller, along with the senior fiscal advisors to the Legislature and Gov. Arnold Schwarzenegger's administration, depicted the dismal consequences of a continued budget impasse between legislative Democrats and Republicans.

The upshot:

Before the end of the month, state road and school construction projects -- heralded as the best economic stimulus the Capitol can offer -- will go idle.

By March, California will run out of cash, forcing thousands of vendors to take IOUs or nothing at all.

And by June, the lawmakers will face a financial disaster that will require twice as much in painful cuts or tax increases as currently proposed.

"As unpalatable as tax increases or further program cuts may appear, neither is as toxic to the state's fiscal heath as doing nothing," said state Controller John Chiang.

Democratic leaders called the unusual session in hopes that lawmakers would take action on the fiscal emergency Schwarzenegger declared last week. Although the state's grim situation has been apparent for months, GOP lawmakers nixed a Democratic plan just before Thanksgiving to reduce the gap by tripling the state's car tax and cutting programs.

"I think some of my colleagues on both sides of the aisle are living in denial, frankly," Assembly Speaker Karen Bass (D-Los Angeles) said before the session.

Yet there was little indication that the two-hour session had shifted the political dynamic. Bass planned to spend today in Washington, D.C., pressing the federal government for financial assistance to ease the crisis, something she has emphasized repeatedly.

The Republicans, who attended reluctantly, refused to accept tax increases, instead emphasizing the importance of limiting state spending and ferreting out waste and bloat in existing programs.

"I didn't see a lot of productive work there today," said Senate minority leader Dave Cogdill (R-Modesto). "I think it was more about trying to heighten the intensity around this thing and push people to a place that they have been trying to push us to for a long time, and I don't think it's going to work."

Sen. Dave Cox (R-Fair Oaks) held aloft two weighty yellow tomes produced by the last effort to trim state government -- Schwarzenegger's 2004 California Performance Review, which suggested 279 ways to save money by reorganizing the state bureaucracy. Almost none were adopted.

In his comments, Mac Taylor, the Legislature's nonpartisan fiscal analyst, described the folly of trying to close the gap either by taxes or through spending cuts alone. A tax-only solution would require increasing the sales tax by 2 cents, adding a 15% surcharge to the personal income tax and hiking corporate taxes by 2% -- making all of those taxes the highest in the nation, he said.

Taylor said erasing the budget gap by cuts would require lawmakers to end all funding for the University of California and state universities, welfare grants, developmental health services, mental health and in-home supportive services.

Chiang, the controller, said the state faces a $2-billion cash crunch in March because it cannot borrow all the money it needs because of the international credit crisis and the state's troubled fiscal condition.

State Treasurer Bill Lockyer said that within two weeks, the state will start "shutting down" nearly $5 billion in public works projects, including road and school building efforts, unless lawmakers make a dent in the budget gap. He said the state is having trouble selling bonds that finance those projects but calling them off would translate into $12 billion in losses to private contractors working on them.

"Billions of dollars that would have gone to private sector businesses, creating tens of thousands of jobs, would be cut off," Lockyer said. He advised legislators: "Stop relying on the tooth fairy and other fantasies" that there is some painless way to resolve the crisis.

Mike Genest, Schwarzenegger's finance director, resorted to the language of 12-step programs when he told lawmakers that "the first step of solving a problem is recognizing you have a problem."

Michael Villines (R-Clovis), the Assembly GOP leader, said all of four presenters had given similar briefings to the Republican caucus.

"We already have all this information, and the tough choices are clear," Villines said. "There is no doubt that they have painted a bleak picture, and it is a bleak picture."